Apple’s Run Could Be Done if iPhone Revenue Flattens

Stock (Symbol)

Apple (AAPL)

Stock Price


Data is as of
November 17, 2018
Expected to Report
Jan 30
Company Description
Apple’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also sells and delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Source: Thomson Financial
Sharek’s Take
David SharekApple (AAPL) stock’s run could be done as 59% of sales come from the iPhone, but iPhone unit sales were just 0% last qtr, with the “growth” coming from higher prices. That’s not good. Apple sales rose 20% last qtr, but if iPhone revenue would have been flat, it would have reduced sales growth down to 4%.

And now this: Starting next qtr, Apple management will no longer be providing unit sales data for iPhone, iPad and Mac. Okay, fine. I didn’t track unit sales anyway. But in term of managing my position, I have to know what parts are growing and what parts are slowing. So here’s a rundown: 

  •  iPhone revenue was 59% of total Apple sales last qtr vs 55% a year-ago. iPhone revenue rose 29% last qtr, but the company sold the same number of units compared to the same qtr a year ago, thus the gain in iPhone sales came from a higher selling price ($793 compared to $618 a year ago).
  • Services accounted for 16% of total sales vs 16% of sales a year-ago. Year-over-year growth was 17%. The company was proud it got to $10 billion in services revenue, but the percentage of overall sales was the same, so services isn’t ready to be the lead dog by any means.
  • Macs accounted for 12% of sales, down from 14% a year ago.
  • Wearables is only 7% of sales, but that was up from 6% a year ago. Wearables had 50% revenue growth, but since this is such a small division it didn’t help much. Wearables include Apple Watch, AirPods and Beats products.
  • iPads were 7% of total Apple sales, down from 9% a year ago. Revenue in this division was down 15% year-over-year.

If Apple has a downturn in iPhone sales — ahem, I mean revenue — that would certainly hurt the stock. The growing areas are Wearables at 7% of sales and Services at 16% of sales, which aren’t big enough to make a big difference. Thankfully, Apple does an amazing job buying back stock, so profit growth could could still be in the double-digits with single-digit sales growth. Apple has $237 billion in cash, and $115 billion in debt, for a net cash position of $123 billion. Last qtr it repurchased $19 billion in stock and repaid $3.5 billion in dividends. Apple has an Est. LTG of 13% per year, a yield of 1.5%, and a P/E of just 14. Luckily, with the P/E so low, the stock might find support here. My Fair Value is a P/E of 16, which works out to $216 a share. AAPL is a value, but I’m very concerned about iPhone sales growth going forward. The company needs a new catalyst. I have to reduce my position in this stock, but will continue to hold some shares long-term.

One Year Chart
Last qtr Apple delivered 41% profit growth and beat estimates of 31%, as sales increased 20%, the 8th consecutive qtr of accelerating sales growth.

But management guided estimates lower, thus analysts took their 2019 estimates from $13.56 to $13.48 and 2020 estimates from $14.97 to $14.82. Not bad.

Qtrly profit Estimates are for 25%12%, 8% and 7% profit growth the next 4 qtrs. My guess is these further out estimates are too low, and Apple will deliver 10-20% growth next year. But that’s just a guess.

The Est. LTG of 13% per year is ok, and investors get a 1.5% yield too. This stock has a low valuation, a P/E of 14 is good!

Fair Value
Apple is moving more towards a service business model, where the apps and subscriptions it sells become a more meaningful part of its business model. This should result in a higher valuation, or P/E ratio.

My Fair Value is a P/E of 16, which gives the stock modest upside. Note the P/E on the stock was just 16 the prior two years.

Bottom Line
Apple has had its ups-and-downs the past decade. Just last qtr it was at an All-Time high. Now this qtr people are freaking out, I mean wondering about iPhone sales. And that’s a big concern, as the other divisions aren’t large enough to pick up the slack.

AAPL takes a dive in my Power Rankings, as it was the top ranked stock in all my portfolios after I wrote last qtr’s report. AAPL now ranks 15th in the Conservative Growth Portfolio Power Rankings, and I will sell some shares from this portfolio. In the Growth Portfolio it ranks 33rd, and I will reduce my position somewhat here too. I will sell the stock entirely from the Aggressive Growth Portfolio

 Power Rankings
Growth Stock Portfolio

33 of 42

Aggressive Growth Portfolio


Conservative Stock Portfolio

15 of 35

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